The Atlanta-based database outfit has been compiling information on the creditworthiness of individuals for more than a century, offering its insights mostly to lenders. Its credit scores, along with those of two rivals, can make the difference between having admirers watch you drive off the lot in a shiny new Lexus and having your kids watch the repo man back your leased Corolla down the driveway.

Equifax (ticker: EFX), however, not only has studied consumers, but also has shared in their recent pain. Fewer home and car sales mean less demand for credit reports. After the stock crested at $46.26 in 2007, financial performance peaked the year after. In 2008, revenue topped out at $1.94 billion with $2.48 a share in profits; revenue slid to $1.82 billion in 2009 when earnings dropped to $2.33 a share. The shares hit bottom in 2009 at $19.79.

A few numbers—credit-challenged consumers would agree—don't tell the whole story. Even before the recession, Equifax had begun to launch products and services that broadened its picture of consumers and expanded its potential market beyond banks and a few other, mostly U.S.-based customer categories. For example, Equifax in 2007 purchased TALX, a company that gathers employment and income information about individuals. It can combine this data with that of another purchase, IXI, which gathers wealth data based on zip code. The two companies contribute to a new product called Decision 360°, an attempt at a more granular portrait that may be of use to small businesses, auto lenders, banks and insurers.

"We had a goal to generate 10% of our revenue from products generated within the last three years. We crossed that threshold last year," says Richard F. Smith, 51 years old, a former senior executive at General Electric who's been chairman and CEO since late 2005. The diversification, reducing reliance on mortgage-related business, has enabled Equifax to "weather the storm better," he notes.

In all, the company has introduced 137 new products and services over the past two years, according to Boyar's Intrinsic Value Research, a New York investment-research boutique, which puts a $44 value on the stock—about 20% above last week's $35.66.

The effort has lessened the effect of a weak economy. Equifax reported late last month that it earned 65 cents a share in the third quarter, beating Wall Street estimates of 64 cents, on revenue of $490 million, up from $474 million in the year-earlier quarter. "Despite a double-digit decline in mortgage activity, we were so diversified we could deliver an 8% revenue increase," Smith says. Analysts expect Equifax to post a $2.52 a share profit in 2011 on revenue of $1.95 billion, up from 2010's $2.36 a share on $1.86 billion. That should grow to $2.73 a share on $2 billion in 2012.

Bottom Line

According to an investment-research firm, Equifax shares are worth $44 each, about 20% more than recent prices, as the company broadens its product and customer base.

"Look closely at the numbers, and you'll see that they are growing their businesses. To be gaining market share, during such slow times, shows that they are doing some things right," says Kurt Havnaer, analyst at Jensen Investment Management, which owns the shares.

The stock trades relatively cheap—about 13 times projected 2012 earnings, well below its 10-year median of 15.2 times. Another basis of comparison: Private-equity fund Madison Dearborn bought effective control of rival TransUnion for an implied nine times enterprise value to Ebitda (earnings before interest, tax, depreciation and amortization) in 2010. Equifax trades at 8.5 times on that basis.

Obviously, Equifax strains against the same headwinds as consumers, but technological gains in an era of real-time data and new customers are helping it push forward. Smith envisions new types of clients, like health-care providers who want to verify a patient's identity and confirm that he has the right medical benefits before admitting him; or a merchant who wants added information before approving a credit-card charge at the cash register. Mobile devices like smartphones open up other opportunities.

Private-equity firm Veronis Suhler Stevenson projects a 6.5% average compound growth rate for business-information providers like Equifax over the next five years. "Equifax is one of the largest players in a little-known but fast-growing part of the trillion-dollar communications industry," says John Suhler, a founding partner.

Worthy of a Credit Upgrade?

Equifax's price/earnings ratio is near the bottom of business-information providers.

Recent

-----Est. EPS*-----

-----Est. P/E*-----

Company/Ticker

Price

2011

2012

2011

2012

Acxiom / ACXM

$13.29

$0.74

$0.83

17.9

16.1

Dun & Bradstreet / DNB

65.46

5.98

6.69

10.9

9.8

Equifax / EFX

35.71

2.52

2.73

14.2

13.1

Experian / ADR / EXPGY

12.77

0.81

0.91

15.8

14.0

*All earnings per share and P/E estimates are on a calendar- year basis except for Experian. EPS and P/Es for Experian are for the March 2012 and March 2013 fiscal years.

Source: Thomson Reuters

Equifax has only just started to tap the possibilities in countries with burgeoning middle classes, such as Russia, Brazil and India. It recently joined up with Boa Vista, Brazil's second biggest credit bureau. At present, the company gets just 29% of its profits overseas.Analyst Carter Malloy, with Little Rock-based brokerage Stephens with a $45 target cited as remarkable Equifax's ability to expand market share in difficult times like today where it is winning business from Dunn and Bradstreet, itself undergoing a technological upgrade.

Largely unnoticed amid Greek debt disaster and U.S. political fights is the consumer's revived appetite for debt, a big propellant for Equifax's business. Total U.S. consumer debt recently hit $11.2 trillion, a smidge more than the $11.1 trillion posted before the recession hit, according to Equifax's own National Credit Trends report. That's good news for the consumer-credit watchdogs.